Manarin Investment Counsel, Ltd.

From CATO - Treasury Secretary Tim Geithner seemed to go from zero to hero in one day when the stock market soared on March 23, ostensibly because of his latest plan to help banks unload illiquid securities of uncertain worth.  The Wall Street Journal headline shouted, "Toxic-Asset Plan Sends Stocks Soaring."

But homebuilder stocks jumped as much as bank stocks, suggesting the same day's news about a 5.1% jump in existing-home sales deserves much of the credit.  Any remaining credit should go to Fed Chairman Ben Bernanke, not Geithner. 

The rally in financial stocks began after Ben Bernanke's March 11 speech to the Council on Foreign Relations.  He came out strongly against the nationalization of banks and admitted that the bookkeeping problems of many banks are largely an artifact of foolish federal regulations.  Bernanke said, "capital standards, accounting rules and other regulations have made the financial sector excessively procyclical."

Until recent headlines gave Geithner undue credit for a one-day rally, the administration officials had correctly insisted such daily moves could be misleading.  Weekly stock market moves, however, are not so easy to brush off.  The administration must learn to respect sustained market reactions to its policy proposals because the loss of stockholder wealth has had a devastation effect on consumers, banks and businesses.

Since last September, the federal government has justified numerous costly and heavy-handed programs by claiming each new intervention would help the banks and restore confidence to financial markets.  The only objective measure of success or failure is the market value of financial stocks.  By that standard, government solutions have been the biggest problems.